SolarEdge Technologies Inc. (NASDAQ:SEDG)

Inventory Turnover

The inventory turnover ratio displays a fluctuating trend over the period. It increased significantly from 4.37 in 2018 to a peak of 5.54 in 2019, followed by a decline to 3.01 in 2020. Subsequent years show slight improvements but remain lower than the 2019 peak, with values of 3.51 in 2021 and 3.11 in 2022. This suggests a slower rate of inventory turnover in recent years compared to 2019.

Receivables Turnover

The receivables turnover ratio shows variability, starting at 5.4 in 2018 and dropping to 4.78 in 2019. It reaches a high point of 6.67 in 2020 but then declines substantially to 4.3 in 2021 and further to 3.44 in 2022. This downward trend in the last two years indicates a slower collection of receivables, which may impact liquidity.

Payables Turnover

The payables turnover ratio follows a generally declining trajectory. It increased from 5.77 in 2018 to 6.16 in 2020 but then steadily decreased to 5.29 in 2021 and 4.93 in 2022. The reduction indicates the company is taking longer to pay its suppliers over time.

Working Capital Turnover

The working capital turnover ratio rises from 2.07 in 2018 to 2.87 in 2019 but experiences a sharp decline to 1.14 in 2020. It recovers moderately in 2021 and 2022, reaching 1.66 and 1.55 respectively. This pattern indicates a significant drop in the efficiency with which working capital is being used in 2020, with partial recovery thereafter.

Average Inventory Processing Period

The inventory processing period reveals an inverse trend compared to inventory turnover. It falls from 84 days in 2018 to 66 days in 2019, indicating faster inventory processing. However, it then increases markedly to 121 days in 2020 and remains elevated at 104 days in 2021 and 117 days in 2022, reflecting slower inventory turnover and potential inventory management challenges.

Average Receivable Collection Period

This metric shows an increase in the time taken to collect receivables, rising from 68 days in 2018 to 76 days in 2019, then declining to 55 days in 2020. However, it increases again to 85 days in 2021 and extends further to 106 days in 2022, indicating slower cash inflows from customers in the latter years.

Operating Cycle

The operating cycle lengthens steadily during the period, starting at 152 days in 2018, dipping slightly to 142 days in 2019, then increasing significantly to 176 days in 2020 and continuing to lengthen to 189 days in 2021 and 223 days in 2022. This signifies an increasing number of days between inventory acquisition and cash collection from customers, suggesting increasing operational inefficiencies.

Average Payables Payment Period

The average period for paying suppliers increases gradually over the years from 63 days in 2018 to 74 days in 2022. This indicates the company is extending its payment terms or delaying payments to suppliers, possibly as a cash management strategy.

Cash Conversion Cycle

The cash conversion cycle, which reflects the net time to convert inventory and receivables into cash after paying payables, displays an increasing trend. It decreases slightly from 89 days in 2018 to 81 days in 2019, then rises to 117 days in 2020, stabilizes around 120 days in 2021, and further extends to 149 days in 2022. This increase suggests that the company’s liquidity tied up in the operating cycle is growing, potentially putting pressure on cash flow.

Cost of Revenues

There is a consistent and significant increase in the cost of revenues over the five-year period. Starting from approximately $618 million in 2018, the cost rose steadily each year, reaching about $2.27 billion in 2022. The most substantial annual increase occurred between 2021 and 2022, indicating a sharp rise in costs associated with generating revenue.

Inventories, Net

The net inventories also experienced a marked upward trend throughout the period. Beginning at roughly $141.5 million in 2018, inventory values more than quintupled by 2022, culminating at approximately $729.2 million. This growth reflects a significant buildup in inventory levels over time, with particularly large increases observed between 2020 and 2021, and again from 2021 to 2022.

Inventory Turnover

The inventory turnover ratio shows variability and a general declining trend after peaking in 2019. It rose from 4.37 in 2018 to a high of 5.54 in 2019, suggesting improved efficiency in inventory management at that point. However, it declined in subsequent years to 3.01 in 2020, improved slightly to 3.51 in 2021, and then declined again to 3.11 in 2022. This indicates reduced efficiency in converting inventory into sales or possibly higher inventory holding periods in recent years compared to 2019 levels.

Overall Insights

The increasing cost of revenues paired with rising inventory levels suggests escalating operational scales or challenges in cost control. The declining inventory turnover ratio after 2019 implies that inventory management efficiency has deteriorated, potentially impacting working capital and liquidity. These patterns may warrant closer examination to optimize inventory processes and manage cost increases effectively.

Revenues

The revenue figures demonstrate a consistent upward trend from 2018 through 2022. Starting at approximately $937 million in 2018, revenues increased to $1.43 billion in 2019 and saw a modest rise to about $1.46 billion in 2020. The growth accelerated in subsequent years, reaching nearly $1.96 billion in 2021 and subsequently surging to over $3.11 billion in 2022. This pattern indicates strong sales expansion, with particular emphasis on the significant growth observed in the final year.

Trade Receivables, Net of Allowances

Trade receivables also show a marked upward trajectory across the examined timeframe. Beginning at $174 million at the end of 2018, the balance increased to nearly $298 million in 2019 but then declined to around $219 million in 2020. Subsequently, the figure rose substantially to $456 million in 2021 and almost doubled to exceed $905 million in 2022. The rising accounts receivable indicate increasing credit sales, with substantial accumulation of receivables particularly noticeable in the latest two years.

Receivables Turnover Ratio

The receivables turnover ratio exhibits a fluctuating yet downward overall trend. Starting at 5.4 times in 2018, the ratio decreased to 4.78 in 2019, then increased notably to 6.67 in 2020. However, it declined sharply again to 4.3 in 2021 and continued to drop to 3.44 in 2022. The decreasing turnover ratio implies a lengthening of the collection period for receivables, which may suggest potential challenges in collections or extended credit terms being granted to customers despite the increasing sales volumes.

Summary

The data reveals strong revenue growth over five years, particularly accelerating in the last two years. This growth is accompanied by a substantial increase in trade receivables, reflecting higher credit sales. However, the declining receivables turnover ratio suggests slower collection efficiency, which may raise concerns about cash flow management or credit risk going forward. Overall, while sales expansion is robust, increased attention to receivables management appears warranted.

Cost of Revenues

The cost of revenues exhibited a significant upward trend over the analyzed period. Starting at approximately 618 million US dollars in 2018, it increased substantially each year, reaching over 2.26 billion US dollars by 2022. This represents a more than threefold increase over five years, indicating higher expenses directly associated with production or service delivery.

Trade Payables, Net

The net trade payables also showed a pronounced increasing trend throughout the period. The payable balance grew from about 107 million US dollars in 2018 to nearly 460 million US dollars in 2022. This growth is consistent with the expanding scale of the company's operations and correspondingly higher cost of revenues.

Payables Turnover

The payables turnover ratio displayed a generally declining trend. Beginning at 5.77 in 2018, the ratio showed a slight increase to 6.16 in 2020, but thereafter it decreased successively to 4.93 by 2022. This reduction in payables turnover indicates that the company is taking longer to settle its payables, suggesting a potential shift in payment terms or cash management strategy.

Overall Financial Insights

The observed data reflect rapid growth in operational scale, as evidenced by substantial increases in both cost of revenues and trade payables. However, the decline in payables turnover ratio suggests a lengthening of payment cycles, which might be a deliberate financial strategy to preserve cash or could imply challenges in supplier payments. Close monitoring of liquidity and supplier relationships would be advisable in light of these trends.

Working Capital

The company's working capital exhibited an overall increasing trend over the analyzed period. Starting at approximately 452 million US dollars in 2018, working capital grew moderately in 2019 to nearly 496 million, followed by a significant increase in 2020 to over 1.28 billion. Although there was a slight decline in 2021 to about 1.19 billion, the figure surged again in 2022, reaching nearly 2.01 billion US dollars. This substantial growth indicates an overall strengthening of the company's short-term financial health and liquidity position.

Revenues

Revenues consistently increased each year from 2018 through 2022, demonstrating strong top-line growth. Beginning at approximately 937 million US dollars in 2018, revenues rose sharply to around 1.43 billion in 2019, and then marginally increased in 2020 to about 1.46 billion. The growth accelerated in the subsequent years, reaching nearly 1.96 billion in 2021 and expanding significantly to over 3.11 billion US dollars in 2022. This upward trajectory reflects an expanding business with increasing sales performance.

Working Capital Turnover

The working capital turnover ratio, which measures how effectively the company utilizes its working capital to generate revenues, showed some volatility across the period. It increased from 2.07 in 2018 to a peak of 2.87 in 2019, indicating improved efficiency in using working capital relative to revenues. However, in 2020, the ratio dropped sharply to 1.14, reflecting that working capital increased at a faster pace than revenues, potentially signaling less efficient use of working capital. Subsequently, the ratio recovered to 1.66 in 2021 but slightly declined again to 1.55 in 2022. Despite the fluctuations, the ratio remained above 1.0, implying that the company was still generating more revenue than its working capital base, though with some reduction in efficiency relative to earlier years.

Overall Insights

The company has demonstrated robust growth in revenues alongside a substantial increase in working capital, indicating expansion and presumably increased operational scale. However, the declining working capital turnover ratio from its 2019 high suggests that efficiency in utilizing working capital to drive sales diminished somewhat after 2019. This might warrant further investigation to ensure that the increasing working capital investment continues to be productive. The substantial growth in both revenues and working capital by 2022 underscores the company’s expanding operations but also highlights the importance of managing working capital effectively to maintain operational efficiency.

Inventory Turnover

The inventory turnover ratio exhibits fluctuations over the observed period. It increased from 4.37 in 2018 to a peak of 5.54 in 2019, indicating improved efficiency in inventory management during that year. However, from 2020 onward, the ratio declined significantly to 3.01, followed by a slight recovery to 3.51 in 2021, and then a small decrease to 3.11 in 2022. This overall downward trend after 2019 suggests a reduction in how quickly the inventory was sold or used, potentially signaling slower sales or increased inventory levels relative to cost of goods sold.

Average Inventory Processing Period

The average inventory processing period, expressed in days, shows an inverse trend relative to inventory turnover. It decreased from 84 days in 2018 to 66 days in 2019, reflecting faster inventory movement during that time. Subsequently, there was a notable increase, reaching 121 days in 2020, which indicates a considerable slowdown in inventory turnover. This longer processing period persisted with some variation, slightly decreasing to 104 days in 2021 and then increasing again to 117 days in 2022. The prolonged inventory periods in these years further reinforce the observation of slower inventory turnover post-2019.

Insights

The trends in inventory turnover and processing periods suggest that the company experienced a period of inventory management efficiency improvement in 2019, followed by challenges in maintaining that efficiency in later years. The expanded inventory held may imply potential issues such as decreased demand, supply chain disruptions, or shifts in inventory strategy. Monitoring these metrics in conjunction with sales and production data could provide a clearer picture of underlying operational dynamics.

Receivables Turnover

The receivables turnover ratio presented a fluctuating trend over the five-year period. Initially, it decreased from 5.4 in 2018 to 4.78 in 2019, indicating a slowdown in the collection efficiency. This was followed by a significant increase to 6.67 in 2020, suggesting an improvement in the speed of receivables collection during that year. However, from 2020 onwards, the ratio declined markedly to 4.3 in 2021 and further to 3.44 in 2022, reflecting a notable deterioration in receivables management or collection processes in the latter part of the period.

Average Receivable Collection Period

The average number of days for receivables collection showed an inverse pattern to the receivables turnover ratio, as expected. It increased from 68 days in 2018 to 76 days in 2019, which aligns with the initial decrease in turnover. In 2020, there was a marked improvement as the collection period shortened to 55 days, consistent with the peak in turnover ratio. Subsequently, this positive trend reversed, with the collection period rising sharply to 85 days in 2021 and extending further to 106 days in 2022. This indicates slower collection of receivables and potential issues in cash flow management during the last two years of the observed timeframe.

Insights and Implications

The data suggests that the company experienced improved efficiency in receivables collection in 2020, potentially due to better credit policies or improved customer payments. However, the decline in turnover and the increase in collection days post-2020 raise concerns regarding the effectiveness of credit management and cash cycle efficiency. The extended collection period in 2022, reaching over 100 days, could imply increased credit risk or a deterioration in the liquidity position, which may require management attention to optimize working capital management going forward.

Inventory Processing Period

The average inventory processing period exhibited variability over the observed years. It decreased substantially from 84 days in 2018 to 66 days in 2019, indicating improved inventory turnover. However, this trend reversed with a significant increase to 121 days in 2020, followed by a slight decline to 104 days in 2021 and then an increase again to 117 days in 2022. This indicates that inventory was held longer in the later years, potentially reflecting adjustments in inventory management or demand fluctuations.

Receivable Collection Period

The average receivable collection period also showed fluctuations, beginning at 68 days in 2018 and rising to 76 days in 2019, suggesting some lengthening in credit collection time. This was followed by a notable decrease to 55 days in 2020, indicating more efficient receivables collection. However, the period then increased sharply to 85 days in 2021 and further to 106 days in 2022, which may indicate challenges in collecting payments or less favorable credit terms during these years.

Operating Cycle

The operating cycle, which combines the inventory processing and receivable collection periods, experienced a generally upward trend. Starting at 152 days in 2018, it decreased marginally to 142 days in 2019 but then increased significantly each subsequent year: 176 days in 2020, 189 days in 2021, and 223 days in 2022. This suggests that the overall time to convert inventory into cash extended notably during the last three years, potentially impacting liquidity and working capital efficiency.

Payables Turnover

The payables turnover ratio exhibited a general decreasing trend from 2018 through 2022, beginning at 5.77 in 2018 and declining to 4.93 in 2022. There was a slight increase from 5.77 in 2018 to 6.16 in 2020, followed by a substantive decline over the subsequent two years to below the initial figure. This decrease implies a slower rate of paying off payables over the later years.

Average Payables Payment Period

The average payables payment period, measured in number of days, increased progressively from 63 days in 2018 to 74 days in 2022. After a modest decrease to 59 days in 2020, it rose sharply to 69 days in 2021 and further extended to 74 days in 2022. This lengthening trend suggests that the company has been taking longer to settle its payables as time progressed.

Overall Analysis

The inverse movement between payables turnover and the average payment period is consistent and expected, indicating that as the turnover ratio decreases, the payment period increases. This pattern reflects a shift toward slower payment practices over the five-year span, which may have implications for supplier relationships and working capital management strategies.

The data reveals notable fluctuations in the company's operational efficiency metrics over the five-year period ending December 31, 2022.

Average Inventory Processing Period

The inventory processing period exhibits variability, beginning at 84 days in 2018, decreasing to 66 days in 2019, then rising sharply to 121 days in 2020. Subsequently, it declines to 104 days in 2021 before increasing again to 117 days in 2022. This pattern suggests challenges in managing inventory turnover, especially from 2019 onwards, with a significant increase observed in 2020 and sustained higher levels thereafter.

Average Receivable Collection Period

The receivable collection period shows an upward trend overall. After starting at 68 days in 2018, it increased to 76 days in 2019, then dropped to 55 days in 2020. However, it rose sharply to 85 days in 2021 and further to 106 days in 2022. This indicates a growing delay in collecting receivables towards the latter years, which could impact cash flow.

Average Payables Payment Period

The payables payment period demonstrates a generally increasing trend over the period. The company shifted from 63 days in 2018 to a slightly lower 61 and 59 days in 2019 and 2020, respectively, before increasing to 69 days in 2021 and reaching 74 days in 2022. This suggests the company may be extending its payment terms or delaying payments to suppliers in recent years.

Cash Conversion Cycle

The cash conversion cycle lengthened substantially across the period reviewed. It started at 89 days in 2018, declined to 81 days in 2019, then increased sharply to 117 days in 2020. Continued increases were observed, reaching 120 days in 2021 and further extending to 149 days in 2022. The elongation of the cash conversion cycle signals a decrease in operating liquidity, as the company takes more time to convert resources into cash, which could present financing and working capital challenges.

Overall, the analysis indicates that the company experienced increased delays in inventory processing and receivables collection, alongside an increasing trend in payables payment period. These factors collectively have contributed to a materially prolonged cash conversion cycle by the end of 2022, highlighting potential pressures on cash management and operational efficiency.